Persistent Global Pressure on Prices, Some More Central Bank Hikes, and the Dollar Touches Its Firmest Level Since July 2020

November 17, 2021

The weighted DXY dollar index touched 96.24 overnight, its strongest level since the first week of July 2020, but has settled back to show no net changed. Relative to Tuesday closing levels, the dollar is down 0.3% relative to the kiwi, yuan, peso, and sterling and by 0.1% vis-a-vis the euro, yen and loonie. The biggest overnight move has been a 1.3% further advance against the Turkish lira.

The price of gold is trading 0.6% higher, reflecting general inflation worries. Nonetheless, WTI oil has eased back 0.6%. Ten-year sovereign debt yields are unchanged in the U.S., U.K., Germany and Japan. Equity markets dropped Wednesday by 0.7% in Australia, 1.2% in South Korea, 0.4% in Japan and 0.3% in Hong Kong but rose 0.4% in China. Stock markets in Europe and U.S. futures haven’t moved much.

The second estimate of Euroland consumer prices matched preliminary results showing a 0.8% monthly advance and a 0.7 percentage point increase in year-on-year inflation to a 159-month high of 4.1%. That 4.4 percentage points greater than minus 0.3% inflation in October 2020. In Euroland’s four largest economies, inflation between October 2020 and last month swung from -0.5% to 4.6% in Germany, -0.6% to 3.2% in Italy, -0.9% to 5.4% in Spain, and +0.1% to 3.2% in France.

In New Zealand, producer output inflation of 6.2% last quarter was up from 4.0% in 2Q and its highest level since the final quarter of 2008. Producer input inflation of 7.0% was 1.1 percentage points higher than in the second quarter and the most 50 calendar quarters.

British CPI inflation jumped 1.1% on month and to a 118-month high of 4.2% in October, more than twice the targeted medium-term pace. Inflation had been only 0.4% last February. Core CPI increased half a percentage point to 3.4% and, like total CPI, surpassed analyst forecasts for October. So did the latest 12-month projections of producer output price inflation (a 13-year high of 8.0%) and producer input price inflation of 13.0%.

Australian wage cost inflation climbed 0.6% on quarter in 3Q 2021 and to a six-quarter high of 2.2% in on-year terms.

Austrian CPI inflation, which printed at only 0.8% last January, climbed to a 157-month high of 3.7% in October.

Portuguese PPI inflation of 15.4% in October was the most in 258 months and two percentage points above September’s level. Portugal’s PPI, by contrast had dropped 3.1% between January 2020 and January 2021.

Officials at the Central Bank of Jamaica agreed unanimously to raise their policy interest rate by 50 basis points to 2.0%. This followed a 50-bp initial increase in October. CPI inflation in this Caribbean country has climbed above the 4-6% target to reach 8.2% as of September, and a released statement expresses concerns that above-target and rising inflation might ignite second-order inflationary price mark-ups.

The Central Bank of Icelands policy interest rate has also been raised multiple times in response to the recent acceleration of inflation. Today’s hike to 2.0% from 1.5% increased the ante following 25-basis point advances in May, August, and October. “The inflation outlook has deteriorated somewhat since August, owing in part to more persistent global price increases, a more rapid rebound in domestic economic activity, and rising wage costs. The outlook is for inflation to continue rising in coming months but then start to ease, given that inflation expectations remain anchored to the target.” That being said, the statement expresses readiness to tighten more if such becomes necessary. Inflation as of October in Iceland stood at 4.5%.

And late Tuesday, officials at the Hungarian National Bank lifted their base rate by 30 basis points to 2.1%. Prior to an initial tightening in June, the rate had been at 0.60% since a cut in July 2020.

In other economic news this Wednesday,

Japan’s customs clearance balance of trade unexpectedly remained in deficit for a third straight month in October. The deficit swung to a shortfall of 67 billion yen from a surplus of  JPY 841 billion one year earlier. Imports soared 32% on year, while exports were 9.9% higher. Japan also reported on machinery orders in September (-10.4% overall) and 3Q 2021 (+0.8%). Core domestic orders stagnated on month and rose 0.7% in the quarter. Government and export orders respectively plunged 23.8% and 14.2% during September.

Construction output in the euro area rose 0.9% in September. Interrupting a trio of successive monthly declines, construction output in the third quarter as a whole still dropped 1.7%, thus reversing a 1.5% rise in 2Q.

Treasury-compiled U.S. capital movement data for September revealed the first net overall outflow ($26.8 billion) since October 2020.

South African retail sales increased 5.1% on month in September, their best monthly result in 7 months, and 2.1% on year.

U.S. housing starts unexpectedly slipped 0.7% last month to a 6-month low, but a silver lining in the data was a 4.0% and greater-than-forecast number of building permits issued to a 2-month high.

On the Covid front, the number of newly discovered cases continues at a pace above half a million daily. U.S. cases yesterday were a touch above 85k and some 18% greater than the number two weeks earlier, but the death count continues to trend downward.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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